Box.net Boss Beckons Startups Into the Enterprise

On first pass, Aaron Levie is your typical 20-something Silicon Valley CEO. Jeans. Orange sneakers. Unkempt hair. And in many ways, his company, Box.net, is a typical Silicon Valley story. Friends build product in dorm room. Product takes off. Friends drop out of school and land millions of dollars in investment capital.

But with its peer-to-peer file sharing application, Box.net operates in a different space than the typical Silicon Valley startup. It’s an enterprise outfit. Drawing on their lives as consumers, young entrepreneurs tend to solve everyday consumer problems — how to remember where you parked, find a good deal on hot wings, etc. But Box aims to solve a problem facing big businesses.

Box.net claims that roughly three-quarters of Fortune 500 companies now use its service in some capacity, and Levie can’t understand why more startups haven’t followed a similar path. When you consider the amount of money being spent on technical infrastructure each year, he says, it’s surprising the enterprise doesn’t draw more attention from young talent looking to fill holes in the world’s technology.

Gartner predicts that global IT spending will hit $3.67 trillion worldwide in 2011, up 7.1 percent from 2010. By 2015, it expects that number to grow to $4.44 trillion.

Young entrepreneurs don’t know the enterprise like they know the consumer, but that doesn’t mean they can’t learn. “No college student in history has had an ERP problem,” Levie told Wired, shortly after delivering the closing speech at BoxWorks, the company’s user conference, in San Francisco on Wednesday. “But … why try to compete against giant nimble companies like Facebook and Google when you can go against someone like slow-moving IBM?”

Truth be told, Levie and his Box.net cofounder Dylan Smith fell into the enterprise by accident. After building a tool for sharing Word docs across dorm, library, and classroom computers at the University of Southern California, they offered it as a free service to the world at large. After a while, large companies started calling, explaining that because their employees were using the service in large numbers, they wanted a version built specifically for business use.

“We needed that freemium model to get off the ground,” Levie noted, referring to the common practice of winning a large number of users with a free product, before actually looking to make some money. “We can’t beat Microsoft’s Sharepoint by going through the regular channels. That initial free offering made our enterprise uptake work.”

The rub is that as Box took on more and more paying enterprise clients, it was faced with more and more requests for new features. Managing this became a delicate exercise, Levie said, but rather than try to satisfy all requests, the company has tried to synthesize the mountain of requests into a single product. The strategy has been largely effective for most of their clients, but not all.

“We’ve had to hold off on some deals,” Levie said.

When asked about how Box stacks against Dropbox, a startup with a similar elevator pitch — and, for that matter, very similar name – Levie was quick to say he doesn’t it see the company as a competitor. Dropbox is wonderful for syncing documents between a home and work computers, he says, but Box is focused on syncing documents between a thousand machines across a company while enabling collaboration.